The securities watchdog is playing an active role in the revision of China's Securities Law to protect the interests of small shareholders, a senior regulatory official said yesterday.

The China Securities Regulatory Commission (CSRC) would lobby the Standing Committee of the National People's Congress (NPC), the top legislature, to enact such protection in the Securities Law, said Gui Minjia, vice-chairman of the regulatory body.

The 10th NPC Standing Committee is currently meeting in Beijing to enact and amend some laws, including the Securities Law.

"Protecting the legal rights of investors is on the top of our agenda and the focus of the securities law", he said.

The commission will propose the establishment of a securities investor protection fund, Gui said.

The fund would offer some compensation to individual investors if they suffer losses due to a financial crisis or bankruptcy of a broker.

But it does not cover losses caused by investors' poor judgment.

"In such cases, the investors should shoulder the responsibility," Gui said.

The CSRC earlier announced that interest generated from subscriptions to bond and share issues would be pooled as one source of the fund.

Establishing a healthy brokerage sector is another major concern for the commission there have been many instances of clients' guarantee funds being embezzled; and poor management.

Steps taken by the CSRC to improve the quality of broking houses include:

Investors' guarantee funds are now required to be held by a third party and tough punishment is meted to violators.

High thresholds have been set for the establishment of securities companies and the appointment of high-ranking managers.

Good brokers will receive preferential treatment while poor performers are to be taken over or shut down.

A risk index system has been established to effectively supervise securities companies.

"We will propose that the top legislature add these items to the current law," Gui said.

The draft amendment unveiled on August 23 said the CSRC can freeze or seal individual or corporate bank accounts if illegal activities are detected.

On the other hand, the draft also sets some restrictions on the CSRC to guarantee that new powers are exercised fairly.

It needs the approval of the chief regulator when freezing or closing a bank account. And at least two investigators should be appointed for any probe.

Moreover, the commission would also add some articles about corporate governance of listed companies - such as the responsibility of controlling shareholders and accurate and adequate information disclosure.

(China Daily August 30, 2005)